Credit growth has reached a level of 30% in the last two years. There are serious concerns for higher CD ratio. Major problems are credit quality, financial market conditions etc. The monetary policy for 200607 has tried to address concerns such as inflation management, slowpaced growth and level of currency supply.

The broad objectives of monetary policy in India relate to maintenance of a reasonable degree of price stability and expand credit adequately to foster faster growth. But the relative emphasis on these objectives has naturally differed in various phases of India's development. In the ultimate analysis, monetary policy has to be evaluated in an integrated framework in terms of the interrelationship among money, credit, output and prices.

The effectiveness of the transmission mechanism is hampered by several behavioral and institutional relationships. Consequently, there has been a resurgence of interest in the monetary and credit policy initiatives in influencing the volume and composition of money and credit in the economy. The dynamics of monetary management in an increasingly open economy attempt to temper market expectations through adroit handling of design, implementation and coordination of major monetary policy instruments in conformity with the rapidly unfolding financial landscape. The macroeconomic objectives of RBI, i.e., the "pursuit of price stability and ensuring the availability of adequate credit to the productive sectors of the economy " (RBI, 1998) is attempted through conduct of monetary policy, including exchange rate policy, and acting as the lender of last resort. Despite the menu of possible variations on the basic approach, monetary policy is essentially aimed at strengthening the financial system, streamlining the credit delivery mechanism and institutional improvements to support growth consistent with stability in a medium-term perspective.

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